Institute of Certified NZ Bookkeepers

engagement pack

Having an engagement letter in place from the outset will provide certainty

Once a potential client advises that they would like to engage you for your services for the agreed fee, a letter of engagement should immediately be prepared and sent by the bookkeeper to formalise the business relationship.

Here is why:

1. They are legally binding

An engagement letter, signed by both parties will serve as the go-to document to resolve any disputes that may arise. This also ensures certainty for the bookkeeper and the client from the beginning of the relationship.

2. They set expectations and create certainty

A letter of engagement must be drafted in clear and certain terms to work effectively and must not be open to misinterpretation. The letter should clearly record:

  • The name of the parties:
    Properly identify the client who will receive the services. It may be an individual, a group, an entity, or a portion of an entity—it is important to be specific.
  • The scope of services:
    Scope of services is the most important part of the engagement letter. By including your scope of services, it helps mitigate scope creep and guards against the client developing unreasonable expectations about the services to be performed.  Be very clear with what the services include. If the scope changes or the bookkeeper is asked to do additional work, ICNZB strongly recommends a new engagement letter be issued for that work.
  • The obligations of each party:
    In most engagements, the client is responsible for specific actions and to provide certain information or records. Be specific with what the client’s responsibilities are and state what information the client is being relied upon for, in order to fulfil the service.
  • The fee payable for the services being provided:
    No two jobs are the same so ensure the pricing for the services is specific.  The engagement may be performing a regular payroll service for a client with a price set for each payroll run.  Or it may be performing monthly bookkeeping on a set retainer.  Be clear on the price, frequency of billing and what component the pricing is for (if multiple services are being offered under one engagement letter)
  • Reference to your full terms and conditions:
    The most effective engagement letters use a standalone terms and conditions document that is referenced within the engagement letter. By having these terms provided as a separate document, it shortens the engagement letter which makes it more user friendly to clients. When the client agrees to the engagement letter, they are also agreeing to the terms and conditions.
  • The fact it has been agreed to:
    In order to be enforceable the bookkeeper must hold a copy of the engagement letter signed and dated by both parties on file. 

3. They prevent misunderstandings.

A relationship with the client will often begin with some sort of verbal agreement. The bookkeeper may not even think of it as an agreement in formal terms, but over the course of a consultation things may be said which the client may take as a promise or agreement.

Engagement letters take much of the guesswork out of the relationship with the client. After an agreement is put on paper and a client is asked to read and sign it, no one has to try and remember exactly how much was quoted in a consultation. The fee is in the engagement letter.

Even better, if an engagement letter is effective and clearly worded the likelihood of these kinds of misunderstandings ever arising is significantly reduced.

A bookkeeper who has just set up their own business would need to engage a lawyer to assist with the development of their engagement documents.  The cost of this could easily be in the vicinity of $2,000 + and, as a new business, that amount of money might not be at their disposal.

In conjunction with Calibrate Legal, ICNZB have developed an engagement pack for purchase by bookkeeper members in New Zealand.  Click here to find out more >
  • 23 November 2020
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